Don’t ignore building an emergency savings fund. Because even in a desert, it storms… it’s just a matter of when. That’s why you should claim these seven awesome benefits of having a well-funded emergency savings fund – and why it could be among your most urgent financial moves today.
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An emergency savings fund is an essential for the wellbeing of your personal finances. Truly, it gives you more control of your destiny and can help keep you afloat if you lose your job.
On the other hand, too many people are more like the emperor with no clothes… Lots of expensive toys that make you look rich but not much substance and lots of debt. Don’t fall for cheap talk and a fake “fortune.”
Time to Get Serious About an Emergency Savings Fund
In the wake of COVID-19 debt, overspending and scant savings don’t feel so great. Who cares if you have a bunch of “stuff” if you can’t pay for essentials like food, toilet paper, and a roof over your head? That makes now the best time to get more focused on creating and building an emergency savings fund and a wealth creation plan…
This is precisely what happened to us in 2008-2009 when the financial markets melted down. We were carrying a large debt load from overspending. The financial melt-down served as a major wake-up call, just as COVID-19 is for many today. It’s important to ask yourself…
Are you living beyond your means, carrying too much debt, living paycheck to paycheck? Are your financial plans upside down – maybe saving for retirement but carrying a lot of debt at 28% interest?
Here’s how to regain control of your money, lose your stress, build wealth, and strengthen your marriage. All in one simple step. Because…
Even in the Desert, It Storms… It’s Just a Matter of When!
No matter how well-planned your life is, sooner or later storms come. It’s all a matter of time. Bad stuff visits all of us. We shouldn’t be surprised by this, as if it’s a thief in the night.
Ever known anything like this to happen to you or someone you know?
- Your job is down-sized (or machines come for your job), your company is bought, or you’re fired.
- You’re asked to take a pay cut.
- “We weren’t ready for kids yet/weren’t going to have another one.”
- Your car blows up, transmission dies, or you total your car in an accident.
- You get a devastating health diagnosis or have an emergency room visit.
- The furnace breaths its last… while you were hoping for another year on the old one.
- The basement leaks, you don’t realize it for two weeks… now there’s major damage to carpet, drywall, and furniture for thousands in damages
- The world gets hit with a previously unknown virus and everyone is ordered to stay home… millions are laid off.
- Your landlord raises your rent.
- A parent is gravely ill and you need to travel far to see them or attend their funeral.
- You lose track of how fast you’re driving and get a $150 speeding ticket. (Okay, this could be avoided. But it happens.)
- Add your own here… The world is full of previously unanticipated situations.
As I write this, we’re in the midst of what’s been dubbed a global health pandemic. The financial ramifications of shutting down whole nations has been extreme and unprecedented. Small business owners are worried they won’t survive. And many won’t. Even if you thought you had a secure job, many employees who were living paycheck to paycheck are also in trouble, if government handouts end.
While hardly anyone saw this coronavirus coming and it really was like a thief in the night, life is unpredictable. In fact, it’s predictably unpredictable. Revisit the above list if you’re in doubt. We could add more items, and we’re sure you can too.
That’s why you need an emergency savings fund. This is a savings account you only dip into for true emergencies. Because even in the desert, it will rain at some point. The question is simply, “When?”
To be clear, an emergency savings fund may not save you from every devastating life circumstance. But it will save you from many of them. And without that fund, your life stands to be thrown into more chaos at a faster rate. Just check out these great benefits of having an emergency savings fund.
7 Awesome Things Having an Emergency Savings Fund a Will Do for You
Think of your emergency fund savings account like an insurance policy. You hope you never need to use it. But when you need it, it’s there.
In that light, an emergency savings fund provides many of the same benefits as insurance. An insurance policy transfers your biggest risks onto the insurance company. An emergency savings fund transfers this risk to your specially designated account. Insurance and your emergency savings fund are your one-two punch against uncertainty and worry. Here are seven great things an emergency savings fund can do for you.
1. An emergency savings fund gives you terrific peace of mind.
You know that if something bad happens (and sooner or later, it will), you’re covered for many situations. This actually lets you sleep at night instead of lying awake worrying about the unexpected.
2. An emergency savings fund reduces stress.
Stress is a real deal-breaker for your health. Slashing stress can help keep you healthy, energetic, productive… and out of the doctor’s office and pharmacy. And that, my friend, could save you a wad of money in and of itself.
3. An emergency savings fund offers the security of a safety net.
Hopefully you wouldn’t go on the flying trapeze without a safety net under you. Nor would you take your family on vacation without putting the kids in their car seats. An emergency fund savings account is your family’s financial safety net. It helps guard against the worst.
4. An emergency savings fund puts you squarely in control of your own destiny.
If you want to be tossed about in the storms of life, keep doing what you’ve always done. As the saying goes, “The best definition of insanity is to keep doing the same things you’ve always done, expecting different results.”
An emergency savings fund is your a key step on the road from desperation and panic to taking charge of your own destiny.
5. An emergency savings fund helps you build wealth by protecting your assets.
Building a secure emergency savings account gives you a solid base upon which everything else can be built. It’s the foundation of your financial home. Build your financial house on rock – not sand – and it’ll withstand life’s inevitable storms.
Having this emergency savings fund will help you avoid high-interest debt when that inevitable stormy day comes.
6. An emergency savings fund energizes you, instills confidence and hope.
If you feel like life has beaten you down, this single step will boost your confidence. Even if you’re a single mom struggling to make ends meet, this simple step will buoy you. It’ll help you become an overcomer. Get started today. There’s nothing quite so confidence building as knowing you can handle at least some of the storms of life.
7. An emergency savings fund improves relationships.
According to MoneyWatch, nearly half of American couples fight over money. Most of these fights occur over spending issues. One person wants to spend and the other says they can’t afford it. Data from TD Ameritrade says that 41% of divorced Gen-Xers and 29% of divorced Boomers blame the divorce on money arguments.
What if you could instead create a money success plan that you share as a mutual goal, starting with your emergency fund?
How Large Should Your Safety Net, aka, Your Emergency Savings Be?
Most financial planners agree that an emergency savings fund is the foundation of your financial house. A great safety net. Your Plan B. But they disagree about just how large that fund should be. Here at MyWalletWisdom, we think it all depends…
If you’re a single mom struggling just to put food on the table, $500 might be a big audacious first step. But don’t stop there. Just make the $500 your first fast goal.
If you’re the sole breadwinner with a family to feed and mortgage to pay, start with $1,000 as soon as possible… and build up to six to 12 months’ worth of expenses.
Even if you’re single and relatively free of responsibilities, you need an emergency fund. You might lose a job and be without income for a time. If you live paycheck to paycheck and suddenly have to buy a plane ticket home for a parent’s grave illness or funeral but have no extra cash to your name, now you’re saddled with debt. Or more debt, if you’re already in debt.
Some financial experts advise three to six months’ worth of basic living expenses… based on your bare minimum budget… not your wine and steak dream list.
We at MyWalletWisdom think it’s smart to build a 12-month fund, given the uncertainties of our times. But a couple caveats, or things to consider. As we point out in our article about emergency savings being bunk, there’s more than one way to play this, depending on your circumstances. If your spouse works but you’re living on just the one income, the second income could effectively act as part of your emergency savings fund.
In another scenario, if you’ve grown your non-qualified investment funds to a significant amount, it could double as part of your emergency savings fund. But you must be aware that you might have to withdraw it at a time when your investments are down. Note that you’ll be penalized for withdrawing money from a 401k or other qualified account, unless you’re over age 59-1/2.
Likewise, if you’re single with no children and your expenses are very low and income high, you can get by with less of an emergency savings fund and be able to funnel more into retirement accounts.
Overall, the more you have in your emergency savings account, the more you’ll enjoy the seven awesome benefits of having money in the bank for that inevitable stormy day. Also, it’s rather uncanny… Murphy’s Law seems to skip over those who have their safety net in place.
How to Grow Your Emergency Savings Fund Fast – 8 Steps
Having a vision for a more secure financial future is the first step to getting going on your emergency savings fund. But it also takes action. Here are some ways to build your emergency savings fund faster than you ever thought possible.
1. Start small. Can you squeeze $100 a month into your emergency savings fund? This could come compliments of simple frugality measures. See our article on Great Depression frugality hacks.
2. Once you do $100 per month, challenge yourself to double it.
3. Set an initial goal for your emergency savings fund. For you it might be $1,000 or $5,000. The point isn’t how large it is at the beginning, but getting started. However large, having a written goal makes you far more likely to achieve it.
4. Add any windfalls, pay increases, and gift money to your emergency fund until you have six to 12 months’ worth of living expenses in your emergency savings fund. (Unless you’ve made the conscious decision that less than six to 12 months’ works for you.) Once you have your emergency savings fund fully funded, add those windfalls to your investment account(s) or 401(k).
5. Set up automatic transfers into your emergency savings fund. Once it’s set up you won’t need to touch it. What’s more, when it moves automatically you don’t have to remake the decision of whether or not you can “afford” it this month. You’ll learn to live without it.
6. Funnel any tax returns into your emergency savings fund. According to the AARP the average US tax refund is a whopping $3,000.
7. In addition, adjust your withholdings so you get extra money every month. In the case of a $3,000 refund, that’s $250 per month you could be adding to your emergency savings fund throughout the year instead of making an interest free loan to Uncle Sam. (Not that banks pay much in interest, but every little bit counts.)
8. As you pay off debts, funnel the money you were paying for debt reduction into your emergency savings fund until it’s fully funded.
There you go… eight realistic ways to fund your emergency savings fund and build your wealth.
A Very Important Final Note
One last thing… This money is not to be touched except for one of the emergencies listed above. For example, that sale on the furniture you’ve been eyeing is NOT an emergency. An expensive dinner out to celebrate reopening from coronavirus closures may be a wonderful change, but it’s not an emergency either.
Too often we are our own worst enemy. A famous battle report from the War of 1812 is a great case in point… “We have met the enemy and he is us.”
Bottom line… You must protect the money in your emergency savings account from yourself. If you know it’ll burn a hole in your pocket, devise a way to keep it away from yourself – maybe by putting it in a separate savings account that’s a pain to get at. And then forget you put it there, so it’s really there for you in that rainy day.